The way we manage money is influenced by how we value money. Generally, there are three main attitudes:
- Savers value money for its security and peace of mind. They save compulsively for emergencies or their plans.
- Spenders believe that money is meant to be spent for them to enjoy themselves. They like to indulge themselves while they still can, even if it causes them to incur a lot of debt.
- Monks believe money is below them and will avoid dealing with it whenever possible. There are rich monks too (e.g. those who are born or marry into wealth and have no need to worry about money).
As a saver, I used to focus on saving every single penny. I could spend half an hour calculating the shortest bus route to save 20 cents for a one-off journey. However, I lost money by making ill-advised large ticket items such as useless electronic gadgets.
This attitude of being penny-smart but pound-foolish did not serve me. Saving for a rainy day may be good advice, but it is also not making good use of the stockpile of money slowly eroded by inflation. The spenders’ idea of indulgence did not appeal to me. I tried being a monk but found that I only exchanged one problem for another – I had freedom with my time but lived with the constant stress of finding money for my daily expenses and projects.
In the end, I decided to remain a saver but implement new policies to cover the weaknesses in my strategy:
1) Whenever I wish to spend money, I consider its value based on how much work I need to do to afford it. If I earn $40 per hour and the vacation costs me $4,000, then is it worth me working 100 hours for that vacation? This helped to control all my big-ticket purchases.
2) I invest part of my cash in research and self-improvement. The investment must provide a long-term recurring benefit and be value for money. I favour tangible objects like supplements and eyeglasses since they convey a tangible benefit. Intangible objects like memory techniques learned from workshops are quickly forgotten unless they are skills or certifications that can increase my income or advance my life work.
3) Whenever I decide between spending more money or more time, I choose the alternative that gives me the most value for money. For instance, if I can spend a few dollars more per day to save an hour of travel time but can earn a few times that amount in an hour, I will do so.
4) Never try to predict the movement of the financial markets. Even if we can predict the events, we cannot predict the market reaction due to the chaos of too many market speculators trying to profit. Even if we can predict likely market reactions, we will get anxious and cut temporarily losing positions. Long-term financial speculation is a sure-fire way to lose money, borne out by statistics.
5) There was much hype about paying for experiences instead of material goods, but I consider that another ‘spender’ mentality. Working hard for hundreds of hours just for a short holiday of artificially sculpted tourist experiences does not appeal to me. The only experiences worth spending money on are to give good, sincere people a chance to escape poverty and better their lives.
6) The concept of manifesting wealth through positive thinking is a materialistic wolf in spiritual sheep’s clothing. It treats the universe as a genie for fulfilling everyone’s material wishes. Financial and business education has always been the foundation for those who get rich and stay rich, not a shortcut based upon pseudoscience. To increase wealth long-term, develop strengths and talents in new niche areas with little competition, which most people cannot compete with.
Cash Flow = Income – Expenses (Seeing Money as a River)
Money flows into our lives via our income and flows out of our lives via our expenses. Cash Flow is the amount of extra money we can use in any way we like after subtracting our expenses from our income; it is an essential indicator of our financial health.
Financial Runway = Available Cash / Monthly Expenses
This estimates how long we can maintain our spending with no new income. If we have $10,000 available and spend $1,000 monthly, our runway is 10 months, assuming spending stays the same. It measures time we can fund, not our total wealth.
Financial Independence
I think of Financial Escape Velocity as having sufficient assets and income to support the life we need without depending on continued employment. This is the objective I am working towards, not a claim that any investment can guarantee unending income. Living costs, losses and changing circumstances still need to be allowed for.
One possible route is owning shares in productive businesses, including established blue-chip companies that may benefit from AI. But “blue-chip” does not identify all future winners. Share prices can fall and dividends are not guaranteed. Several holdings can also remain exposed to the same risk. The question is whether the overall resources can support our life, not whether an investment carries a reassuring label.
Understanding Assets, Liabilities & Cash Flow
An asset is something we own; a liability is something we owe. My practical concern is also whether what we own brings money in or requires money to maintain. Income-producing assets can include:
- Licensed Intellectual Property
- Rental Real Estate
- Interest-Bearing Loans made to others
Possessions that generate ongoing expenses can include:
- Personal Car (petrol, maintenance etc)
- Personal Home (land tax, utilities etc)
- Personal TV set (electric bill, maintenance, etc)
A home can be an asset even though it costs money to maintain; its mortgage is a liability. For example, a home worth $300,000, a $200,000 mortgage and $10,000 in cash give a net worth of $110,000 if there are no other assets or debts. Only $10,000 of that is cash available for spending. Rental property also has expenses, so assess its income after costs rather than assuming that any income-producing asset will support us.
Active vs. Passive Income
Active income requires much constant effort from us. Examples include working in a job, small business and speculating in shares. Passive income may require much initial effort but little constant effort. Examples include establishing a business franchise, writing a best-selling book, renting out real estate property to a long-term tenant and making a long-term interest-bearing loan. Passive income is the “secret” of attaining financial freedom.
However, it is rare to have a truly passive income. Best-selling books will eventually lose popularity, real-estate properties will require supervision and maintenance, business franchises require managing franchisees, while debtors may refuse or be unable to pay back the loans. Do not become so fixated on this concept that we refuse to earn active income.
Working with an Employer, a Partnership or an AI-Enabled Business
A viable business can be developed through an existing employer, a partnership or a new venture. A route I would be interested in exploring is working with, or partnering with, my employer to develop AI-enabled services that improve the business and create opportunities for both of us.
Career progression need not only mean managing more human employees. An employer could retain an employee in a developing role that manages AI agents for the business. The responsibility would be to organise their work, evaluate results, handle exceptions and connect the output to what the business and its customers actually need. Microsoft’s 2026 Work Trend Index discusses this wider shift towards directing and evaluating agent-supported work.
The arrangement would still need workable costs, reliable delivery and terms that benefit both employer and employee. Founding a business of my own is another possibility. I do not yet have a proven business model or an answer to what would sustain its profitability when competitors can use comparable agents.
In a highly competitive market, increased capability might be needed simply to preserve purchasing power. That would not fulfil the larger objective of financial independence, but it could still be materially better than allowing earning power to erode or becoming dependent on support that might cover only basic survival. Better capability, higher income and independence are separate outcomes; progress should be assessed against the outcome actually achieved.
A business that still requires our continuing work is not automatically passive income. These are possible routes to improve or defend our position while working towards greater security, not promises of immunity from economic change.
Leverage
Since money has to come from somewhere, passive income comes from using other people’s effort and money to enrich ourselves. However, you must offer them something they want in return to leverage other people.
Capital Appreciation vs. Cash Flow
Capital appreciation occurs when something you own can be sold at a higher price than you purchased. For instance, a house you bought a few years ago can now be sold for double the price you previously paid. When we seek financial freedom, we are looking for cash flow. Even though a house can wait 10 years to appreciate, our stomachs cannot wait that long to eat.
Inflation
Inflation is a rise in the general price level, reducing what a fixed amount of money can buy. It can arise from demand exceeding available supply, supply disruptions, monetary conditions and inflation expectations. If our usual purchases rise from $100 to $105, unchanged income buys less. Hyperinflation is an extreme, rapid rise in prices.